Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of Mitchell?
A) Assets and equity decrease.
B) Liabilities increase and equity decreases.
C) Assets and liabilities increase.
D) Liabilities and equity increase.

Question

Quizplus · Accepted Answer

The receipt of the bill from the supplier represents an increase in liabilities (amount owed to the supplier), which results in a decrease in equity (as the company now owes more to its suppliers). Therefore, the accounting equation is affected by an increase in liabilities and a decrease in equity.

Mitchell Company Receives a Bill from One of Its Suppliers